AI in action · Markets

The BIS Called the AI Boom a Financial Stability Risk in June. This Week Showed Why

The Bank for International Settlements' annual report warned that hyperscalers' trillion-dollar AI spending is outrunning their cash flow and is increasingly financed with debt and circular deals. In October, CoreWeave's bonds and six AI suppliers' shares put numbers on the warning.

Oct 16, 2026

The Bank for International Settlements, the institution owned by the world's central banks, published its Annual Economic Report on June 28, 2026. Its opening chapter, Progress and Peril, named the AI investment boom as a risk to financial stability. The five largest hyperscalers, it said, are "set to spend over a trillion US dollars on AI-related capital expenditure from 2025 through 2026," and those "commitments are outpacing earnings and the free cash flow of these firms," so some have turned to debt.

The report's concern is less the spending than its structure. It describes circular financing: chipmakers and hyperscalers take equity stakes in AI labs or 'neocloud' providers, which then commit to multi-year purchases of chips or computing power; data centres are built by third parties and leased back under long contracts with exit clauses. These deal terms, the BIS wrote, are "typically poorly disclosed," with the risk of the same asset being pledged more than once. Direct-lending funds, it noted, have roughly quadrupled their lending to AI and IT in five years, to about 15% of their portfolios. "Disappointment in returns could trigger a sudden pullback in financing."

Four months later the market produced a worked example. CoreWeave, a neocloud that borrows to buy Nvidia chips and rents them out, fell 15.46% on October 14 and bounced 5.94% on October 15 — while, according to Yahoo Finance, its credit default swaps rose to a record pricing roughly 60% odds of default within five years and its 9% bonds traded at 80.75 cents on the dollar. Yahoo Finance also calculated that six AI infrastructure suppliers had lost about $94 billion of market value since October 6.

The BIS also looked at AI inside the markets themselves. "Supervisory visibility into AI use by market participants needs to improve," the report said, to capture model-driven correlated exposures, herding and the potential for algorithmic collusion — the scenario in which many firms' models, trained on similar data, move the same way at the same time.

Its prescriptions are the central bankers' usual ones: finish Basel III, lean against strong risk appetite, extend prudential standards to non-bank lenders, and keep collecting data on private credit. For an individual investor the useful takeaway is simpler. The question the BIS asked in June — who is financing the build-out, and what happens if returns disappoint — is the one the market started pricing this week.

Sources: Bank for International Settlements — Annual Economic Report 2026, Chapter I: Progress and peril (Jun 28, 2026); Yahoo Finance — Stock market today, Oct 15, 2026 (CoreWeave credit default swaps, AI supplier losses)